Do you pay spousal support? You may resent seeing that money drained from your bank account every month, but at least you get to deduct it from your taxes. However, things may not continue this way. The passing of the new Tax Cuts and Jobs Act will affect each new Michigan divorce, and even some divorces that are long over.
The new tax bill will not take effect until 2019, but if you’re in the middle of a Michigan divorce or thinking about getting a divorce, you need to consider the implications of this federal change now. Why? The new tax affects alimony dramatically.
Here are answers to some questions you probably have about the new tax bill and how it can impact your divorce.
Will my spousal support payments change because of the new tax bill?
If you pay spousal support now, nothing will change because of the tax bill. Your payments will remain tax-deductible. If you receive spousal support, you will still claim this amount as income on your taxes.
The only way your current alimony arrangement would change is if you file to have your alimony agreement modified after January 1, 2019.
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What if I want or need to modify alimony payments after January 1, 2019?
The new alimony tax laws state that if you file for modification of your alimony settlement after January 1, 2019, the person paying spousal support will no longer be able to deduct the payments from their taxes and the person receiving support is not obligated to declare it as income. Ouch.
If my divorce won’t be settled until 2019, will I get screwed when it comes to spousal support?
The alimony payment tax deduction will be eliminated starting January 1, 2019. Any 2019 divorce that includes spousal support must follow these new tax regulations.
Is there any benefit to the tax changes to alimony payments?
The person receiving alimony will benefit greatly from the new tax bill. They don’t have to declare the payments from their former spouse as income on their taxes. It’s like money under the table.
Will the new tax rules ruin my upcoming divorce settlement?
It may seem as though the person receiving alimony any time after January 1, 2019, will come out ahead. This is not necessarily the case. Because the payor of spousal support will not have any tax incentives, negotiations for the amount paid in spousal support are likely to be heated and drawn out. The payor will not want to pay as much in alimony without the tax write-off. Even though the recipient of alimony may have the perk of not declaring their alimony payments as income, their payments may be lower than they would have been without this tax change.
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What else do I need to know about my Michigan divorce and the tax bill?
The most important element to have on your side in a divorce is your Michigan divorce attorney. Hiring the right representation in your divorce helps ensure that you don’t come out on the losing end. There will likely be an increase in motions to modify alimony once 2019 rolls around, particularly for people who want to reap the benefits of the tax changes, or who want to stick it to their former spouse.
Divorce in 2019 and beyond will be highly charged – perhaps more so than usual – because of these financial changes. If you are divorcing and have a prenuptial agreement or postnuptial agreement with a clause about alimony, the numbers established there may need to be revisited. All monetary aspects of your divorce must be considered even more carefully because of the Tax Cuts and Jobs Act.
Bring your questions, concerns, and more to Michigan Divorce Help, PLLC in Macomb, Michigan. Contact us today to schedule your no-cost consultation.